One of the founders of The Motley Fool, David Gardner, coined the phrase “Rule Breakers” in reference to companies that innovate and disrupt the status quo of a sector. The Rule Breaker company turns the sector on its head, and gains such momentum and growth that it ends up rewarding shareholders who invested early with outsized returns.
One of David’s early investments was Amazon.com, Inc. (NASDAQ:AMZN), a Rule Breaker even to this day if there ever was one. Amazon completely disrupted retail in the late 1990s by using the internet and efficient distribution systems to dominate the nascent internet retail industry. Wal-Mart Stores, Inc. (NYSE:WMT), a Rule Breaker in its own right in the 1970s and early 1980s, was caught flatfooted. Despite a world-class distribution system, Wal-Mart continues to lag behind Amazon in growth in internet retailing. Amazon of course continues to amaze by branching out into different directions, such as cloud computing services, but at its heart it is a retailing company. Wal-Mart just has never gotten the full hang of this internet thingie, something that Amazon was born and bred to do.
What does any of this have to do with Linkedin Corporation (NYSE:LNKD)? The answer is that LinkedIn appears to be a true Rule Breaker in the making. If you go through the Rule Breaker criteria LinkedIn seems to fit the mold.
1. Top Dog and First Mover in an industry
LinkedIn pioneered the concept of social media for professionals. It is the undisputed top dog and first mover as evidenced by its growth and the willingness of recruiters to pay for access to its members. LinkedIn created a social media environment where people can showcase their careers and connect with others in the business world.
2. Sustainable Advantage
LinkedIn has a large moat because of its large membership base and its networking effects. Once you hit critical mass it becomes much harder for anyone trying to get into your business to break in. With more than 200 million members it owns the professional social media space.
3. Strong price appreciation
Over the last year the stock is up about 67% handily beating the market. Its 1 year chart shows a very nice trend upward with a pop evident after its last earnings announcement.
4. Smart Management
Management has made some excellent moves including raising prices while maintaining strong growth in revenues. LinkedIn continues to surprise to the upside with every quarterly report.
5. Strong Consumer Appeal
With more than 200 million users and ranking 13th in terms of all web site traffic, consumer appeal is built into LinkedIn. If you are a professional looking for a job or a recruiter it is almost a necessity to become a part of the LinkedIn ecosystem.